second dialogue on carbon markets - swiss sustainable finance · 2015. 7. 23. · second dialogue...

Federal Office for the Environment FOENState Secretariat for Economic Affairs seco

Second dialogue on carbon marketsbetween the Swiss private sector and the Swiss Federal Administration

16th June 2015UVEK, Ittigen

2Second dialogue on carbon markets 16.06.2015

• What role should the KP mechanisms play in the post-2020 climate regime (CDM, JI, IET)?

• What role should new market mechanisms (UNFCCC mechanisms and regional/bilateral mechanisms) play?

• How to reform/design market mechanisms so that they are useful tools for incentivizing ambition by both developed and developing countries?

• What elements need to be agreed in Paris to provide enough incentives for the private sector and for countries to reanimate market mechanisms?

• How can the carbon market be strengthened to support the Swiss private sector?


• How can we incentivize early efforts for mitigation before 2020?

• What should be the link between implementing agencies and operating entities of the financial mechanism in view of encouraging investments by the private sector?

• How can the climate finance instruments and the market mechanisms positively interact to increase global mitigation?

• What should be the roles of the Federal Administration and the Swiss private sector?

Eidgenössisches Departement für Umwelt, Verkehr, Energie und Kommunikation UVEK

Bundesamt für Umwelt BAFU

The International Climate Negotiations

Franz Perrez; 16.06.2015

Abteilung

2Name der Präsentation | UntertitelAutor

World Climate Conference1979/1990

UNFCCC1992 / 94

Kyoto:2008-2012

post 2020

Evolution of the International Climate Regime

2013to 2020

1990: recognition of the problem1992: general commitments by all1997: legally binding commitments & review

by limited number of developed countries2010: mitigation: pledge and review

adaptation: institutions and mechanismssupport: fast start and long term

2015: ??


All countries:

legally binding,commit&review

20202012

Kyoto-Protocol

Kyoto II

Developing Countries

Pledge&

Review

USA

Evolution of the International Climate Regime

few developing countries

100%

50%

0%


Durban (2011)

Durban Plattform:• „decides to lauch a process to develop a

protocol, another legal instrument or an agreed outcome with legal force underthe Convention appliable to all Parties“ [§2]

• Complete work by 2015 … to beimplemented from 2020 [§ 4]

• „workplan on enhancing mitigation action“ toclose gap [§ 7]

4


The way forward to Paris

ADP [8.-13.2.]

ADP, SBs [1.-12.6.]

ADP [24.8.-4.9.]

COP21

JAP-BRA

„Blue Sky“

Petersberg

COP21

UNFCCC Ministers Informals

C2ES

Pre-COPLead negotiators

COP20

ADP [10.-23.10.]

CD

COP20

MEFLead negotiators

Lead negotiatorsCD

C2ES

Ministerial

Ministerial

MEF

CD

Lead negotiators

New Text

?

?


Expectations for COP 21

General Expectations:Paris should deliver an agreement on the post 2020 regime

According to France, Paris should deliver:• an agreement on the post 2020 regime• Nationally determined contributions• Ambitious result on financing• “solution agenda” involving non-state actors


What provisions are needed in the new agreement?

NDCs- nationallydetermined, howmuch guided?

- scope?- integral part?- where «hosted»?

Paris Accord- legal force- political clarity- WHAT?

COP Decisions:- Adopting Accord- decision elements:

• dynamic• technical• Details

- decision elementsWS 2

- interimarrangements


Possible Key Elements of New Agreement Mitigation

• commitment tomitigate;

• nationallydetermined«contributions»;

• common rules(incl. markets);

• measuring, reporting and verification(MRV).

• commitment todevelop adaptationpolicies & strategies;

• nationallydeterminedadatation policies& strategies;

• exchange of experience & lessons learnt.

• each countryprovides;

• those in a positionprovide support tothose who needsupport;

• sources (public, private, financialmechanism).

• enablingenvironment;

• MRV delivery, use, impact.

Adaptation Financing


Thank you vor your attention!

Federal Office for the Environment FOENState Secretariat for Economic Affairs seco

UNFCCC negotiations on carbon marketsState of the negotiations and perspectives

Second dialogue on carbon markets16th June 2015Laurence Mortier, FOEN, Climate Division


Laurence Mortier

Overview of the UNFCCC negotiations on marketsSubsidiary bodies:• Review of the modalities and procedures of the

CDM• Review of the JI guidelines• New market instruments (pre- and post-2020)

Durban Platform (ADP):• Markets in the Paris Agreement • COP decisions to be agreed upon in Paris

COP decisions after Paris


Laurence Mortier

Review of the modalities and procedures of the CDM• To update the M&P by integrating developments

(EB current regulation and practice), e.g.:• Programmes of Activities• Role of the Designated National Authorities

• To reform the tool to make it fit for the evolving context, e.g.:• all countries taking commitments - (I)NDC• going beyond pure offsetting• baselines integrating policies of the host country• avoiding double counting

• Challenge: light vs. substantive revision• Technical work is ongoing, but no draft revised

modalities and procedures on the table yet


Laurence Mortier

Review of the JI guidelines

• To merge Track 1 (authority of the host country) and Track 2 (authority of the JI Supervisory Committee) into a single Track under a revised JISC

• JISC would set technical requirements on baselines, additionality, etc. and review the projects

• Challenges: • balance between international oversight and

national implementation• context in which revised JI would apply (currently

until 2020, CP2 not operational yet)• Technical work is ongoing, the draft revised

guidelines are still in discussion


Laurence Mortier

New market instruments discussed in the UNFCCCFramework for various approaches (FVA):• To define general principles and provisions

applicable to internationally transferred mitigation outcomes used towards commitments

• To integrate market mechanisms designed/governed outside of the UNFCCC

• To provide flexibility for countries with economy-wide commitments (cap)

New market mechanism (NMM):• UNFCCC-governed mech. (e.g. enhanced CDM)• Sectoral or policy-based approaches• For countries without economy-wide commit.


Laurence Mortier

Markets in the Paris Agreement

Paris Agreement• A hook to use cooperative arrangements resulting in

internationally transferred mitigation outcomes (market mechanisms)

• Set broad principles, e.g.:• participation (Party to Agr., (I)NDC, inventory,…)• transparency• accounting provisions to avoid double counting• not undermining commitments/contributions• standards (real, additional, permanent, verified)• multilateral facilitative process to demonstrate and increase

quality


Laurence Mortier

Markets in the Paris Agreement and in the COP decisionParis Agreement or COP decisionMandate to the governing body to:• create and strengthen synergies between

cooperative arrangements / mechanisms• develop and adopt standards for implementing the

principles and processes to ensure they are met

COP decision To operationalize:• accounting and tracking system• develop the standards• UNFCCC-governed mechanism


Laurence Mortier

Market mechanisms: challenges and opportunities• Without provisions in the Paris Agreement, market

mechanisms are allowed (Art. 4.1 Convention)• Incentives to have provisions on markets in the Agreement?• Not make the use of markets conditional to further

provisions that may be blocked at a later stage

• Evolving context, all countries will have mitigation commitments/contributions (INDC)• Interaction (I)NDC – market mechanisms• Markets not at the cost of the host country meeting its NDC• Support transformational changes in the host countries

• Activities are taking place outside of the UNFCCC (e.g. California/Quebec, Joint Crediting Mech. Japan)• Integrate and encourage further mitigation activities


Laurence Mortier

Market mechanisms: challenges and opportunities• Foster quality of these activities

• Find the right balance between flexibility and confidence in the multilateral system (common rules)

• Build upon / integrate (some) of the KP mechanisms• Ensure the continuation of competences and institutional

capabilities• Provide certainty for investment to the private sector• Remove lenient aspects of the KP regime• Increase credibility of the system

• Important work to be done after Paris• Operationalize the Agreement and the COP decisions• Encourage further mitigation activities as early as

possible even if UNFCCC negotiations are progressing slowly

CDM: Current Developments &

Perspectives

Second Dialog on Carbon Markets16. 6. 2015, Ittigen

Martin EnderlinMember to the CDM Executive Board

I: Current Developments

• Carbon Market Situation(prices, volumes, CDM budget)

• 2 year Business Plan & MAP2015

• Ongoing CDM key projects:‐ Operate CDM system efficiently‐ CDM simplification (incl. doc framework, PoA)‐ SD: tool & monitoring‐ SB/Standardized Baseline Framework

Market Situation:Carbon prices for CERs (red), EU ETS (blue) and California ETS (green),

selected permit types, January 2010 to April 2013 ($A)

4

Supply and demand: Voluntary markets

2009 2010 2011 2012 2013 2014

Volume* (Mt) 57 59 88 79 76 N/A

Price $/t 7.3 6.5 6.0 6.2 5.9 4.8

• Relatively stable volumes and prices:

• Many standards:CERs: 7% of market

(in 2013)

Source: Ecosystem Marketplace report: State of the voluntary

carbon markets 2014

Market situation & Business plan UNFCCC: Budget

• Budget: ‐ 150 Mio. US $ balance of funds & 45 Mio. Reserve‐ 30 Mio. US $ annual spending(150 pax, >50%; ‐15% annually)‐ CDM infra to be running (at least) until 2023

• Business Plan & Mgmt Plan 15:‐ enabling mitigation activities & ensure trustedcertification‐ nurture policies to broaden demand in CDM

Ongoing key projects (selection)

• Operate CDM system efficiently‐ entity & project assessments

• Simplification & streamlining CDM (reg & iss)‐ PCP, PS, VVS, doc framework, meths, incl. PoA withinexisting mandate / CDM Modalities & procedures (M&P)

• Sustainable Development (SD)‐ tool development, support DNAs with good practiceguidance & monitoring use

• Guidance E+/E‐ policies in Additionality / BL‐setting‐ analytical papers & discussions

• Standardized Baseline (SB) / Framework ‐multi‐year work program (top‐down & bottom‐up)

Standardized Baseline (SB) –Framework program

II: Perspectives

• Time horizon

• Demand & supply (pre‐/post 2020)

• Potentially attractive ongoing CDM key projects:‐ SB/Standardized Baseline Framework‐ Voluntary cancellation plattform‐ Nurturing demand & need of climate financeinstitutions‐ CDM for other uses

Perspectives – Time horizon

• Paris agreement ‐ 3 separate streams comingtogether for pre‐ & post‐2020 market setup

Kyoto 2nd commitment periodKyoto 2nd commitment period

Cancun agreements & pre‐2020 market setupCancun agreements & pre‐2020 market setup

CDM and JI reformNew rules on IET

Framework for Various ApproachesNew Market Mechanism

Post‐2020 market setupPost‐2020 market setup

Relationship to iNDCs country pledgesDiscussion on principles for mechanisms

Perspectives – Demand & supply

• UNFCCC: Pre‐2020 political appetite in KP, incl. MDBs, OECD countries, demand side etc

11

Demand and supply: pre-2020 CER demandSource of demand for the 2015‐2020 period Equivalent estimated CER use

per year (in Mt)

NEFCO 4.3

Norwegian Carbon Procurement 10.0

Swedish Energy Agency 5.7

WB Carbon Partnership Facility 2.8

WB Ci‐Dev 2.2

WB Pilot Auction Facility 4.3

EU ETS operators 15.0

EU Governments 4.3

South Africa 7.4

South Korea 19.2

Mexico 0

Demand side initiative 2

Total 77.2

Supply: CER issuance May 2015 (no ERUs)

=> Oversupply given low pre‐2020 demand(no increase given lack of political will)

Perspectives – Demand & supply

• UNFCCC: Post‐2020 political appetite in INDCs(intended nationally determined contributions)

Perspectives – Demand & supply• UNFCCC: Political appetite in INDCs: Intended nationally determined contributions

14

http://www4.unfccc.int/submissions/indc/Submission%20Pages/submissions.aspx

As of 15/06/2015: 12 submissions (40 Parties)

15

Demand: Market based mechanisms in INDC

International marketmechanisms for INDC

Requirements to market mechanisms

UNFCCC mechanisms

Switzerland YES No double counting / real / additional / verified

YES (CDM)

EU NO* * No double counting / real / additional / verified / net GHG cut

Norway YES No double counting / real / verified YES (CDM /JI)

Mexico Conditional target only Robust / global

US NO

Gabon NO (but use of domestic market instrument)

Russia NO

Andorra NO

Lichtenstein YES High quality standardSD co‐benefits

Canada YES Robust / real / verified

INDCs• CH (2030: total ‐50% (‐30/‐20) 1990 Basis)• EU (2030: total ‐40% (‐40/0) 1990 Basis)• NOR (2030: total ‐40% (‐40/0) 1990 Basis as EU),

if EU agreements fails, may access international markets• MEX (2030: total ‐25% (ev. ‐40% if carbon pricing etc.) 2013 Basis • USA (2025: total ‐26‐28%, but doing best effort, 2005 Basis)• GABON (2030: total ‐50% (incl. internationale Gabon projects), 2000 Basis mit

BAU2025 estimated• RUS: (2030?: total ‐70‐75%, incl. forest (‐20‐25% GHG), 1990 Basis• LI/ANDORRA: similar CH• CN* (6/15): coal peek in 2020, all GHG peak by 2030 etc.

=> reductions in %: dc to follow, significantly too little to stay within 2°C ...

Limited (little) demand so far:only CH/LIE & NOR as DC using international markets !

16

Supply 2020+: CER issuance ?

• CER issuance infrastructure still existing ?(little revenues from SOP/ registration fees ‐ post KP2 infrastructure)

• CER to qualify ?• All types of CERs to qualify ?• Price of CERs ?• Availability of other credits & fungibility ?• ? ? ?

=> COMPLETE UNCERTAINTY ! At best: marginal change & some assurance @ Paris...

=> Regulatory certainty needed for investment (& lead time)

=> Price risk remains given unclear demand=> BUT: Demand CERs from domestic schemes in developing countries (dc)

(tax compensation, ETS compliance / price buffer)

17

Potentially attractive ongoing CDM keyprojects (selection)

• SB/Standardized Baseline Framework‐ standardized Baselines, GEF, sectoral benchmarksetc.

• Voluntary cancellation Plattform ‐ easy cancellation of CERs by individuals, organisations, private sector, Parties ...

• Nurturing demand & need of new climate financeinstitutions‐ IATA, IMO, GCF etc.

• CDM infrastructure for other uses‐ National ETS/carbon tax systems (Korea, SAfrica, Mex)

III: Conclusions –A preliminary view to the questions

• Role KP mech 2020+‐ if UNFCCC & markets are to play a role – which is a must if the US$ 100 Mia./a shall materialize: CDM/CDM+/reformed CDM will play a significantrole as it has vital core elements for success:

‐ transparent processes and methodologies‐ robust, 3rd Party MRV‐ ingredients for scaling up: PoA, Standardized Baseline Framework SB‐ potential & flexibility for multi‐use: voluntary cancellationand use in domestic schemes‐ infrastructure & project / PoA pipeline existing‐ proven private sector track record

• Role NMM (UNFCCC & regional/bil. mech.)‐ NMM & FVA: virtually no practical progress over 5 years. => Hypothesis: NMM will build on CDM/CDM+/reformed CDM –JI (as JCM, VCS etc.) too little integrity & oversight;

III: Conclusions –A preliminary view to the questions

• Reform to incentivize ambition DC/dc ?‐ Limited reform potential given poor political will: Carbon pricinginitiative, fossil subsidy reform, Devestment pension funds, pressurefrom social media

• Elements to be agreed to reanimate market ?‐Market signal for private sector; ‐ Unified transfer system (Accounting Framework ‐ IETA proposal); ‐ Assurance that CERs can be banked (and used unlimitedly for 2050) => CER price push; ‐ +/‐ technology lists (to simplify Additionality => Baseline & ER discussion only)

•How to strengthen carbon market to support Swiss private sector ?‐ Constructive active engagement in continuous CDM enhancement & reform at many fronts

Ceterum censeo

• We do not need more or new marketmechanisms, but to make sure we have accessto a predictable, integer, attractive, scalable, not too complicated, transparent, universal, standardized, efficient, flexible mechanismwith reliable 3rd Party MRV

Bern 16th June 2015 – 2nd dialogue between the Swiss private sector and the Swiss Federal

Administration on carbon markets

Juerg Fuessler (INFRAS) and Axel Michaelowa (Perspectives)

Market Mechanisms: Incentives and Integration in the Post‐2020 World

Source: World Bank, NetworkedCarbon Market (NCM) Initiative

INFRAS

Agenda

| Market Mechanisms | 16 June 2015 | J. Füssler und A. Michaelowa

1. Incentivizing mitigation action pre 2020

2. Accounting – Important essentials for deal in Paris

3. Transitions of market mechanisms – potential storylines

4. How to use elements from market mechanisms to improve climate finance?

5. Preliminary findings for Switzerland

2

Market mechanisms

1. Incentivizing mitigation action pre 2020

INFRAS

Incentivizing mitigation action pre 2020: Current categories of market mechanisms

| Market Mechanisms | 16 June 2015 | J. Füssler und A. Michaelowa 4

Kyoto mechanisms, mostly project‐based (CDM and JI)

Successful but paralyzed by price crash

Efficiency of CDM hampered by additionality issues

Other (domestic and international) offsetting programs (VCS, CAR, JCM, CH‐Kompensationsprojekte, …)

Bottom‐up upscaling of mechanisms (REDD+, NAMA crediting)

Niche activities at the moment, but basis for potential upscaling

INFRAS

Incentivizing mitigation action pre 2020: New mechanisms under the UNFCCC


NMM and FVA:

Principles agreed but “hostage” to the negotiation process since 2012

Willingness to build up new market mechanism seems weak

REDD+

Key questions:

• How do climate finance and market mechanisms interact?

• What role should the UNFCCC play?

• How can environmental integrity and transparency be maintained in a world of fragmented mechanisms?

INFRAS

Scenarios for assessment of market mechanisms


High demand – strong governance

INDCs of industrialized countries and emerging economies are ambitious and envisage acquisition of international credits

Buyers want to ensure high level of integrity

Low demand – weak governance

Limited share of INDCs envisages buying of credits

Scramble to get transactions may lead to low and/or fragmented standards

“Clubs” with common accounting rules and/or “filters” for types of emission credits

Soft linking to allow for a certain fungibility of units

Market mechanisms

2. Accounting – Essentials for deal in Paris

INFRAS

Accounting – Bookkeeping of mitigation outcomes


Robust rules for accounting of crediting units are key to ensure the integrity of any market based mechanism.

Environmental integrity, consistency and comparability of the units

Avoid double counting/claiming: (i) accounting of units, (ii) design of mechanisms that issue units, and (iii) consistent tracking and reporting on units.

Time dimension of units: validity of vintages (carry over), permanence issue

Minimum: robust accounting rules for international transfer of units, even if there is no agreement on an internationally recognized compliance unit in the sense of an assigned amount ‐> need for «clubs»

INFRAS

0

2

4

6

8

10

12

Natl. BAU Domestic mitigation Crediting INDC (Net)

INDC not met

0

2

4

6

8

10

12


INDC met

Accounting – Double counting with MM under INDCs

| Market Mechanisms | 16 June 2015 | J. Füssler und A. Michaelowa

Intl. crediting units shall not count towards domestic INDC compliance.

0

2

4

6

8

10

12


Additional mitigation

INDC met

© INFRAS 2015

a) INDC without international crediting b) INDC with crediting – double counting

c) INDC with crediting – correct accounting

Source: INFRAS 2014

INFRAS

Accounting – Facilitating fungibility of units


Comparability of accounting approaches supports markets

Fungibility: describes the ability to exchange carbon credits from different schemes and make them eligible for compliance in another scheme

(“Soft”‐) linking of carbon markets through

Comparability of accounting, consistency in ambition level

Filters or rating of units and discounting

International Carbon Asset Reserve (ICAR) – Shared risk mitigation systems

“Clubs” – coalitions of the willing

INFRAS

Accounting – carry over of units


Unlimited carry over of emissions reductions units

generates trust in the market and reduces price fluctuations

limits the possibility to eliminate supply overhangs generated by lenient rules in the past

is not attractive in the current situation

Limiting carry over

Allows a “fresh start” (akin to a currency reform)

Could be seen as expropriation by those stakeholders having invested heavily in the past into credit generation

Compromise solutions

Freezing certain units until the supply/demand balance has shifted (price triggers)

Linking carry over to the environmental integrity of the credits

Discounting credits

Possibility of “re‐registration” of existing projects under new rules

Market mechanisms

3. Transitions of market mechanisms –potential storylines

INFRAS

Transitions – towards project or aggregated level instruments? (1)


Project/installation level instrument (e.g. «old CDM»)

Characteristics:

Existing methodologies, institutions, know‐how and MRV structures

Rather limited requirements for host country governments

Builds on private sector initiative – it works

Additionality test on project level is problematic with some project types (uncertainty, low CER impact)

Higher transaction cost on project level

Limited scope for scaling up

INFRAS

Transitions – towards project or aggregated level instruments? (2)


Aggregated/sector level instruments including

Policy instrument based crediting,

Sector target crediting and trading schemes,

Upscaling of CDM, POA and standardized baselines

Characteristics:

Lower Requires significant capacities for data, methodologies, MRV, GHG inventory, legal frameworkt, etc. on aggregated level

Stronger role of governments – challenging in many countries

Key requirement: passing incentives to (private sector) actors

Additionality issues moves to level of crediting baseline setting –remains challenging (level playing field for host countries with different (own) ambition levels)

INFRAS

Storylines for transition of market mechanisms


How could market mechanisms develop over the next years?

Storyline 1: New market based mechanisms Governing body defines common accounting standards, modalities and procedures, overseeing institutions and validation/verification bodies (similar to Kyoto mechanisms).

Storyline 2: Scaling up from CDM or recognizing other existing standardsThe CDM provides a complete, functioning and operational internationally recognized market mechanism. Plus there are more standards to build on.

Pragmatic development of CDM also into aggregated level mechanisms

Solve accounting issue with pledges/INDCs – level playing field issue

Storyline 3: Anything goes – seek transparencyMinimum solution in absence of agreed standards under the UNFCCC

Parties agree agree only on transparency and disclosure requirements e.g. through publishing of all relevant documents related to internationally traded units

INFRAS

Storylines – Clubs


In a weak demand – weak regulation scenario there is a need for «clubs» of likeminded nations/jurisdictions to promote international mitigation

Coalitions of the willing, building on existing (domestic) crediting/ trading systems

Clubs allow to soft‐link multitude of fragmented markets

Liquidity of markets

Participants’ markets may be similar, but not necessarily

Process of negotiating agreements in club is key

Risk mitigation instruments

INFRAS

Storylines – Clubs and ICAR


Example: Landscape of globally networked carbon markets

Carbon Market

A

Carbon Market

B

Linking

Price floor/ceiling

Price fl./ceiling

Carbon Market

C

Carbon Market

D

Carbon Market

E

Carbon Market

F

Price floor/ceiling

Price floor/ceiling

Insurance

Insurance

International Carbon Reserve

Clearing house ‐ fungibility

Price fl./ceiling

©INFRAS 2014

Source: INFRAS 2015 Design options for an international Carbon Asset Reserve. Networked Carbon Markets. A Knowledge Series. The World Bank Group.

INFRAS

Storylines – CDM as important stepping stone


In a situation of uncertainty, CDM seems to be the only readily working tool in the toolbox (storyline 2)

Starting point:

CDM market down, acceptance, additionality, issue of carry‐over

Existing infrastructure, institutions, skills

Options for CDM going forward (M&P review, eligibility in countries):

„open gate“ with existing or simplified additionality testing CDM should work for all project types/levels

„open gate plus“ with very stringent additionality testing

„filter approach” to CDM (criteria: additionality) CDM is not for all project types – only where it is game changer. For some project types, other instruments than offsetting may work better (supported domestic action, linking ETS, …)

Market mechanisms

4. How to use elements from market mechanisms to improve climate finance?(for part 2 of workshop)

INFRAS

Market mechanism elements for climate finance I


Element from MM Role in climate finance

Modifications required

CDM MRV methodologies for project‐level and programmatic level action

Reliable and comparable quantification of finance results

‐ Further standardization‐ Simplification possible‐ Measure progress, not

only outcomes (tCO2)‐ REBRANDING

Independent third party verification

Transparent verification of mitigation progress, outcomes

‐ Capacity building‐ Simplification

Regulatory, institutional and governance setting

Public documentation of criteria, indicators, and evaluation results;Transparency, checks and balances in rules

‐ Adapt for climate finance institutional process (GCF,…)

‐ approach civil society for consultations

INFRAS

Market mechanism elements for climate finance II


Element from MM Role in climate finance

Modificationsrequired

Country‐specific sustainabledevelopment criteria and indicators

Country ownership of evaluation of local co‐benefits

Ensuring countriesinterest in attracting foreign funding does not lead to minimum standards

Key role of the private sector

Need to create incentives for private sector similar to theCDM

Make sure CF can incentivize governments, but also NGOs and private sector

Market mechanisms

5. Preliminary findings

INFRAS

Findings market mechanisms


Uncertainty regarding demand and governance

Accounting: transparency, environmental integrity and robust accounting as necessary condition for market mechanisms

In absence of stringent international rules – seek likeminded parties to form “club”

Storylines for transition: (i) New market based mechanisms, (ii) scaling up from CDM, (iii) anything goes

Stepping stone CDM: “open gate”, “open gate plus” stringent additionality, filter approach – best solution in a low demand scenario?

Make aggregated level mechanisms work for private sector

Ambitious mitigation contributions and domestic action will drive carbon markets

Thank you.

Authors team:

Jürg Füssler, Martin Herren (INFRAS)

Axel Michaelowa, Tyeler Matsuo, Matthias Honegger (Perspectives)

Study commissioned by FOEN.

Federal Department of the Environment,Transport, Energy and Communications DETEC

Federal Office for the Environment FOEN

Climate Finance and marketmechanisms: (How) do theycomplement each other?

Second Dialogue betweeen the Swiss Private Sector and the Swiss Federal Administration on Carbon Markets16th June 2015, Berne

Division

2Presentation name | SubtitleAuthor

Structure

• Green Climate Fund – latest developments

• How do Operating Entities of the Financial Mechanism of the Convention and ImplementingEntities seek to encourage Private Investors

• What Role for Approaches and Tools developed and tested in CDM in Climate Finance


GCF – Latest Developments

• USD 10.2 billion pledged since November 2014 by34 countries (8 developing countries)

• Since May 2015 operational after 60.6% of pledgesformalized through contribution agreements

• 7 entities accredited at last Board meeting March 2015

• Next Board Meeting beginning of July decisionsthat allow the Board to take the first fundingdecisions at its last meeting this year

http://issuu.com/greenclimatefund/docs/3-minute-brief-for-negotiators


GCF – six main criteria


Source: UNFCCC, 2014 BiennialAssessment and Overview of Climate Finance Flowshttp://unfccc.int/files/cooperation_and_support/financial_mechanism/standing_committee/application/pdf/2014_ba_summary_and_recommendations_by_scf_on_the_2014_ba.pdf


Operating and Implementing Entities –Private Investors• GCF – Private Sector Facility (PSF)

• mobilizing funding at scale• mobilizing local private sector, including MSMEs

• GEF – Non Grant Instruments in GEF-6


What Role for Approaches and Tools developedand tested in CDM in Climate Finance

• Experience with mobilizing private sector

• Experience in project preparation and implementation as well as readiness

• Experience in MRV

• Harmonized metrics and definitions(?)


Challenging times ahead of us…

Thank you!

Federal Department of Economic Affairs,Education and Research EAERState Secretariat for Economic Affairs SECO

Activities and experiences by SECO to support the development of new market mechanisms in partner countries

Philipp Ischer16 June 2015

Trade Promotion

SECO’s current engagment and future prospects on its activitiesSECO/WEHU - Philipp Ischer

I SECO’s Climate Portfolio

II How to support market mechanisms?

III Latest and future activities

2

Agenda


I The role of SECO

• The overriding objective of Switzerland’s international cooperation is sustainable development that will reduce poverty and global risks such as, for instance climate change.

• The Federal Council’s 2013-2016 Message on International Cooperation lists the fostering of climate-friendly growth as one of five priority topics of SECO’s economic development cooperation.

• SECO implements its programmes/projects in close cooperation with its partners, such as multilateral development banks and other international organizations.

3


I Areas of intervention

4


I Promoting energy efficency and renewableenergy sourcesThe energy sector is the leading source of greenhouse gas emissions. Energy-saving thus plays a key role in tackling climate change. At the multilateral level, SECO supports several different initiatives, such as• UNIDO’s Resource Efficient and Cleaner Production (RECP)

programme that aims to increase the efficiency of resources used in industrial production and to improve companies environmental performance.

• The Scaling Up Renewable Energy Programme (SREP) in low-income countries of the World Bank. The SREP supports eight pilot countries in their efforts to scale up renewable energy solutions and to demonstrate the viability of low-carbon development pathways.

5


I Sustainable management of natural resources

Apart form energy consumption, the main causes of increased concentrations of greenhouse gases in the atmosphere are the destruction of the rainforest, unregulated changes in land use and an intensification of farming and livestock production. SECO supports, as examples, the following initiatives, projects:• SECO invested in the Forest Carbon Partnership Facility that

supports countries in taking appropriate measures to preserve their tropical rainforests and thus ensure their sustainable management.

• SECO has started a project in Vietnam aimed at promoting the sustainable development of the natural ingredient sector.

6


I Strengthening innovative financing andmarket mechanismsMarket-oriented approaches are a key element of effective and cost-efficient climate protection. SECO thus promotes the development and use of innovative financing and market mechanisms in climate protection.• As part of the World Bank’s Partnership for Market Readiness,

SECO supports developing and transition countries in setting up national or regional emissions trading systems and introducing carbon taxes.

• Together with the Swiss Agency for Development and Cooperation and the Federal Office for the Environment, SECO actively participates in the Green Climate Fund, a new multilateral financing mechanism that will make an important contribution to climate protection in developing countries in the future

7


II How to support market mechanisms?

8


II Reasons for the «maximizing benefits» approach

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• Increasing political momentum for low-carbon development

• Providing confidence to stakeholder that can stimulate low-carbon investment

• Broad support for mitigation policies

• Improving stakeholder engagement

• Improving co-ordination of mitigation activities and promoting synergies

• Learning by doing, leading to better policy design and implementation more rapidly


II Objectives of market mechanisms pre 2020

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The objectives of market mechanism in the pre-2020 world are mainly twofold:

• Generating Er’s with regards to the pre-2020 mitigation pledges

• Strengthening existing market mechanisms and building up new market mechanisms


• Pilot Auction Facility for Methane and Climate Change Mitigation (PAF) Framework

• Piloting Scaled-up Carbon Crediting (New Fund Under Design)

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III Latest and future activities

SECO’s current engagment and future prospects on its activitiesSECO/WEHU - Philipp Ischer 12

III Pilot Auction Facility for Methaneand Climate Change Mitigation Pilots an innovative climate

finance mechanism that uses auctions to maximize impact of funds

Offers a price guarantee for future carbon credits by using the financial equivalent of a put option

Provides incentive for private sector investment in projects that reduce greenhouse gas emissions

Disburses resources against independently verified emission reductions

Initially targets methane

$100m target capitalization – learning a key objective for scaling‐up or replication for use with other pollutants or other results


Initiative designed to pilot new and innovative GHG emission reduction crediting mechanisms (including “policy crediting”), in the process supporting movement to domestic carbon pricing measures

The future international climate regime, and role of carbon markets, is currently uncertain

Despite uncertainty, value to pilot instruments that deliver low cost emission reductions

- Will be consistent with emerging standards for climate finance & new international market mechanisms

- Will inform UNFCCC and GCF

Fund’s resources will pay for verified emission reductions ($30‐$60m over 5 to 10 years per program) and provide technical assistance (establishment of carbon accounting procedures and MRV systems)

Main target are middle‐income countries with significant and growing GHG emissions

III Piloting Scaled‐up Carbon CreditingNew Fund Under Design

Context & Objective

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second dialogue on carbon markets - swiss sustainable finance · 2015. 7. 23. · second dialogue...

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